Unwinding years of price gains as homebuilders try to make deals.

The Commerce Department has reopened for business, and the good folks there are now in hyperdrive to put together and release the data that was blocked during the partial government shutdown that had also shut down the Commerce Department. This morning, it released the sales data for new homes whose sales closed in November. This report  had originally been scheduled for the end of December. In the near future, the Commerce Department will further catch up and release the new-home sales data for December, which had been scheduled for last week.

So, time to catch up, and here we go. The median prices of new single-family houses that sold across the US in November 2018 fell 11.9% from November 2017 to $302,400, the lowest median price since October 2016, and in the same range as the median price in November and December 2014:

This new-home sales data – produced jointly by the Census Bureau and the Department of Housing and Urban Development – is very volatile, and subject to revisions in the following months. But after a while, and despite the jumpiness of the data, as the above chart shows, the trend becomes clear.

The year-over-year decline of 11.9% was the third months in a row of year-over-year declines, and the largest year-over-year decline since Housing Bust 1. Note the many double-digit year-over-year price increases in prior years, which attest to the boom in prices that has now outrun what the market can bear:

Just how far prices have ballooned before they began to deflate becomes apparent in this long-term chart of the median price of new houses. At the price peak in December 2017 ($343,300), the median price was 31% above the crazy bubble peak in March 2007, before it all blew apart:

What are the dynamics of this bedraggled market?

Sales of new single-family houses across the US in November fell 7.7% from November 2017 to a seasonally adjusted annual rate of 657,000 houses, which wasn’t too bad, but it was the third month in a row of year-over-year declines (September, October, November 2018 in red):

And inventory of new houses for sale keeps rising. In November, it reached 330,000 houses (seasonally adjusted), providing 6.0 months’ supply at the rate of sales in November, up from 4.9 months’ supply in November 2017:

What is particularly interesting is how much faster and further the median new-house price has fallen compared to the median price of “existing homes.”

Though the median price of “existing homes” – single-family houses, townhouses, condos, and co-ops – in December was down 7.4% from the peak in June, on a year-over-year basis, it was still up 2.9%. And this, despite a 10% year-over-year drop in sales volume, the biggest such drop since May 2011.

One of the major differences between the two is the entity that is selling these homes. New homes are sold by homebuilders. Existing homes are sold by regular homeowners and investors.

The biggest homebuilders are large stock-market traded companies that have to maintain their sales momentum, no matter what. Through their reach across markets, they have good current market data and know where the market – the buyers – is going. And when buyers don’t materialize at a given price point, then incentives are thrown in, such as free upgrades in the kitchen, and eventually prices get cut a tad, and ultimately less costly homes get built to meet the buyers.

A homeowner or investor who is not forced to sell might pull the home off the market if it doesn’t sell within a few months, and later put it back on the market, and dilly-dally around for years sometimes – though massive job losses, as they occurred during the Financial Crisis, can speed up that pace dramatically.

By contrast, homebuilders have to make sales happen, no matter where the market is. They continue to build homes, and they have to sell homes whatever the market conditions may be. They cannot just wait for a few years until the market turns their way. And so they’re the first to adjust to the reality of the market.

“Dripping down, down, down. Frustrating that the housing market is not recovering,” said the chief economist at the National Association of Realtors. Read…  Home Sales to Get Even Uglier in Near Future


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